Kite Realty Group Trust Reports Third Quarter 2012 Results

Kite Realty Group Trust (NYSE: KRG) (the “Company”) today announced results for its third quarter ended September 30, 2012. Financial statements and exhibits attached to this release include results for the three and nine months ended September 30, 2012 and 2011.

Financial and Operating Results

Funds from operations (FFO), a widely accepted supplemental measure of REIT performance established by the National Association of Real Estate Investment Trusts, was $7.9 million, or $0.11 per diluted share, for the Kite Portfolio for the three month periods ended September 30, 2012 and 2011. The Company’s allocable share of FFO was $7.1 million for both three month periods ended September 30, 2012 and 2011.

For the nine months ended September 30, 2012 FFO, as adjusted for a $1.3 million litigation charge and a $0.5 million write-off of deferred financing costs was $23.8 million, or $0.33 per diluted share, for the Kite Portfolio compared to $23.2 million, or $0.32 per diluted share, for the same period in the prior year. The Company’s allocable share of FFO as adjusted was $21.3 million for the nine months ended September 30, 2012 compared to $20.6 million for the same period in 2011. Without these adjustments, FFO for the Kite Portfolio and the Company’s allocable share of FFO for the nine months ended September 30, 2012 were $22.0 million and $19.7 million, respectively.

Given the nature of the Company’s business as a real estate owner and operator, the Company believes that FFO is helpful to investors when measuring operating performance because it excludes various items included in net income or loss that do not relate to or are not indicative of operating performance, such as gains or losses from sales and impairments of operating properties, and depreciation and amortization, which can make periodic and peer analyses of operating performance more difficult. For informational purposes, we have also provided FFO adjusted for a litigation charge recorded in the first quarter of 2012 and a write-off of deferred financing costs in the second quarter of 2012. We believe this supplemental information provides a meaningful measure of our operating performance. The Company believes presenting FFO in this manner allows investors and other interested parties to form a more meaningful assessment of the Company’s operating results. A reconciliation of net income to FFO and FFO as adjusted is included in the attached table.

Net loss attributable to common shareholders was $3.0 million for the third quarter of 2012 compared to net loss in the prior year of $0.6 million. This change is primarily attributable to an increase in depreciation expense of $3.0 million due to transition of development properties to the operating portfolio and accelerated depreciation related to the redevelopment of the Company’s Four Corner Square and Rangeline Crossing properties, partially offset by a $2.1 million increase in income from property operations. The Company’s total revenue for the third quarter of 2012 increased to $25.4 million from $23.5 million for the same period in 2011 due to transition of development properties to the operating portfolio over the past twelve months.

Net loss attributable to common shareholders was $5.8 million for the first nine months of 2012 compared to net loss in the prior year of $3.9 million. This change is primarily attributable to a $2.2 million increase in interest expense largely due to the transition of certain properties to the operating portfolio, an increase of $4.4 million in depreciation and amortization expense due to accelerated depreciation taken in the current year on certain redevelopment properties, and a $1.3 million litigation charge in the first quarter of 2012, partially offset by a $5.2 million current year gain on the sale of operating properties and higher income from property operations of $5.3 million. The Company’s total revenue for the first nine months of 2012 was $74.8 million, a $4.9 million increase from the same period in 2011. The increase resulted from an improvement in revenue due to the transition of properties from in-process development/redevelopment to the operating portfolio, increased revenue from existing properties due to improved occupancy levels, the current year acquisitions of 12 th Street Plaza and Cove Center and the full year effect of properties acquired during 2011.

John A. Kite, Kite Realty Group’s Chairman and Chief Executive Officer, said "We are pleased with our recent success in the capital markets, as well as the significant progress we continue to make with our current acquisition pipeline. We plan to deploy the capital we recently raised into quality assets and bring our in-process developments to completion, which should accelerate our revenue growth. We are also ahead of plan on the disposition of non-core assets and the recycling of this capital into our redevelopment platform and acquisition opportunities.”

Operating Portfolio

As of September 30, 2012, the Company owned interests in 58 retail properties (including five properties under redevelopment) totaling approximately 8.5 million square feet. During the quarter the Company removed its Preston Commons property from the operating portfolio and transferred it to “held for sale” status, as the Company currently is pursuing the sale of this asset. The owned gross leasable area (“GLA”) in the Company’s 53-property retail operating portfolio was 93.4% leased as of September 30, 2012, compared to 93.0% leased as of the end of the prior quarter.

During the quarter the Company also removed two commercial properties from its operating portfolio and transferred them to “held for sale” status. Pen Products and Indiana State Motor Pool total 200,875 square feet and were sold on October 31, 2012. As of September 30, 2012, the owned net rentable area of the two properties remaining in the commercial operating portfolio was 93.6% leased compared to 93.4% at the end of the prior quarter. The combined retail and commercial operating portfolio leased percentage was 93.5% as of September 30, 2012, compared to 93.0% as of the end of the prior quarter.

Same property net operating income (“NOI”) for the Company’s properties increased 1.9% in the third quarter of 2012 compared to the same period in the prior year. The Company anticipates exceeding its previously disclosed full-year same property NOI guidance range. The same property leased percentage of these 49 operating properties was 93.0% at September 30, 2012 and 92.7% at September 30, 2011.

The Company’s small shop leased percentage increased 120 basis points during the quarter from 80.6% to 81.8%, representing the fourth consecutive quarterly increase. The Company’s anchor leased percentage remained unchanged at 98.2% as of September 30, 2012.

Leasing Activities

During the third quarter of 2012, the Company executed 46 new and renewal leases totaling approximately 231,340 square feet with aggregate cash rent spreads of 4.1%. New leases were signed with 27 tenants for approximately 104,078 square feet of GLA. These leases represent an 11.6% positive cash rent spread. A total of 19 leases representing 127,262 square feet were renewed during the quarter for a 1.9% decrease in cash rent spread.

Development, Acquisition and Disposition Activities

As of September 30, 2012, the Company owned interests in five in-process development/redevelopment projects that were 83.7% pre-leased or committed and are expected to total 703,224 owned square feet upon completion. The total estimated cost of these projects is approximately $195 million, of which $128 million had been incurred as of September 30, 2012.

During the quarter, the Company transitioned the 12,000 square foot DePauw University Bookstore & Café and 14,550 square foot Zionsville (Indianapolis MSA) Walgreens to the operating portfolio. These projects were both 100% leased.

In July, the Company acquired 12 th Street Plaza (formerly “Vero Mall”), a 138,000 square foot neighborhood shopping center in Vero Beach, Florida. 12 th Street Plaza was 96.6% leased as of September 30, 2012 and is anchored by Publix Supermarket and Stein Mart. The purchase price, exclusive of closing costs, was $15.2 million, including the assumption of a $7.9 million mortgage loan which matures in August 2013.

In September, the Company sold its Coral Springs Plaza retail operating property in Coral Springs, Florida for total net proceeds of $8.7 million, which were primarily used to pay down the Company’s unsecured revolving credit facility.

Subsequent to the end of the quarter, the Company sold its Pen Products and Indiana State Motor Pool commercial operating properties for total gross proceeds of $10.1 million.

Capital Markets

Subsequent to the end of the quarter, the Company completed a public offering of 12,075,000 common shares at a price of $5.20 per share, which generated net proceeds to the Company of approximately $60 million. The Company initially used the net proceeds to repay amounts outstanding under its unsecured revolving credit facility. The Company anticipates redeploying the net proceeds into the acquisition of properties and the funding of redevelopment costs.

In July, the Company closed on a $22.8 million construction loan for its Four Corner Square redevelopment property in Maple Valley, Washington (Seattle MSA). The loan bears interest at LIBOR plus 225 basis points and has a three-year term with an option to extend for an additional two years. Vertical construction has commenced on this project and is expected to be substantially complete in the first half of 2013.

In August, the Company closed on a $37.5 million construction loan for its Holly Springs Towne Center development property in Raleigh, North Carolina. This loan has a term of three years with a two-year extension option and bears interest at LIBOR plus 250 basis points (which decreases to LIBOR plus 225 basis points after the completion of construction). Vertical construction has commenced as well on this project and is also expected to be substantially complete in the first half of 2013.

Distributions

On October 12, 2012, the Company paid a quarterly common share cash distribution of $0.06 per common share for the quarter ended September 30, 2012 to shareholders of record as of October 5, 2012. The Board of Trustees anticipates declaring a quarterly cash distribution for the quarter ending December 31, 2012 later in the fourth quarter.

FFO Guidance

The Company is reaffirming its FFO as adjusted guidance for the year ending December 31, 2012 in a range of $0.42 to $0.46 per diluted share. Following is a reconciliation of estimated net loss per common share to estimated FFO per common share:

Guidance Range for 2012

Low

High

Net loss per diluted common share

$

(0.15

)

$

(0.11

)

Depreciation and amortization

0.55

0.55

FFO per diluted common share

0.40

0.44

Charges for litigation and accelerated write off of deferred financing costs

0.02

0.02

FFO per diluted common share, as adjusted

$

0.42

$

0.46

Earnings Conference Call

The Company will conduct a conference call to discuss its financial results on Friday, November 2 at 1:00 p.m. eastern time. A live webcast of the conference call will be available online on the Company’s website at www.kiterealty.com. The dial-in numbers are (800) 901-5213 for domestic callers and (617) 786-2962 for international callers (passcode 75190629). In addition, a telephonic replay of the call will be available until January 9, 2013. The replay dial-in telephone numbers are (888) 286-8010 for domestic callers and (617) 801-6888 for international callers (passcode 53357546).

About Kite Realty Group Trust

Kite Realty Group Trust is a full-service, vertically integrated real estate investment trust engaged in the ownership, operation, management, leasing, acquisition, construction, redevelopment and development of neighborhood and community shopping centers in selected markets in the United States. At September 30, 2012, the Company owned interests in a portfolio of 60 operating and redevelopment properties totaling approximately 8.9 million square feet and an additional two properties currently under development totaling 0.6 million square feet.

Safe Harbor

This press release contains certain statements that are not historical fact and may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results of the Company to differ materially from historical results or from any results expressed or implied by such forward-looking statements, including, without limitation: national and local economic, business, real estate and other market conditions, particularly in light of the recent recession; financing risks, including the availability of and costs associated with sources of liquidity; the Company’s ability to refinance, or extend the maturity dates of, its indebtedness; the level and volatility of interest rates; the financial stability of tenants, including their ability to pay rent and the risk of tenant bankruptcies; the competitive environment in which the Company operates; acquisition, disposition, development and joint venture risks; property ownership and management risks; the Company’s ability to maintain its status as a real estate investment trust (“REIT”) for federal income tax purposes; potential environmental and other liabilities; impairment in the value of real estate property the Company owns; risks related to the geographical concentration of our properties in Indiana, Florida and Texas; and other factors affecting the real estate industry generally. The Company refers you the documents filed by the Company from time to time with the Securities and Exchange Commission, specifically the section titled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, which discuss these and other factors that could adversely affect the Company’s results. The Company undertakes no obligation to publicly update or revise these forward-looking statements (including the FFO and net income estimates), whether as a result of new information, future events or otherwise.

Kite Realty Group TrustConsolidated Statements of OperationsFor the Three and Nine Months Ended September 30, 2012 and 2011(Unaudited)

Three Months EndedSeptember 30,

Nine Months Ended

September 30,

2012

2011

2012

2011

Revenue:

Minimum rent

$

19,439,584

$

17,887,595

$

56,885,392

$

52,329,925

Tenant reimbursements

5,079,911

4,602,449

14,775,601

14,077,871

Other property related revenue

858,676

851,855

2,945,725

3,153,517

Construction and service fee revenue

52,531

180,299

150,548

266,820

Total revenue

25,430,702

23,522,198

74,757,266

69,828,133

Expenses:

Property operating

4,191,874

4,261,465

12,837,821

13,195,006

Real estate taxes

3,282,788

3,296,603

9,868,588

9,764,912

Cost of construction and services

77,901

135,816

252,364

299,982

General, administrative, and other

1,647,116

1,401,475

5,261,293

4,661,059

Acquisition costs

108,169

—

179,102

49,968

Litigation charge

—

—

1,289,446

—

Depreciation and amortization

11,244,270

8,283,440

30,720,823

26,328,902

Total expenses

20,552,118

17,378,799

60,409,437

54,299,829

Operating income

4,878,584

6,143,399

14,347,829

15,528,304

Interest expense

(6,481,825

)

(6,131,103

)

(19,164,454

)

(17,000,667

)

Income tax benefit/(expense) of taxable REIT subsidiary

13,385

(119,561

)

5,995

(72,728

)

Income/(loss) from unconsolidated entities

102,623

239,852

91,475

244,447

Other income

22,688

40,825

108,627

183,415

(Loss) income from continuing operations

(1,464,545

)

173,412

(4,610,528

)

(1,117,229

)

Discontinued operations:

Income from operations

293,552

568,823

962,556

1,186,223

(Loss) gain on sale of operating property, net of tax expense

(65,312

)

—

5,180,568

—

Income from discontinued operations

228,240

568,823

6,143,124

1,186,223

Consolidated net (loss) income

(1,236,305

)

742,235

1,532,596

68,994

Net loss (income) attributable to noncontrolling interests

312,208

57,931

(1,513,591

)

410,968

Net (loss) income attributable to Kite Realty Group Trust

(924,097

)

800,166

19,005

479,962

Dividends on preferred shares

(2,114,063

)

(1,443,750

)

(5,805,939

)

(4,331,250

)

Net loss attributable to common shareholders

$

(3,038,160

)

$

(643,584

)

$

(5,786,934

)

$

(3,851,288

)

Net (loss) income per common share attributable to Kite Realty Group Trust common shareholders – basic and diluted

Loss from continuing operations attributable to common shareholders

$

(0.05

)

$

(0.02

)

$

(0.15

)

$

(0.08

)

Income from discontinued operations attributable to common shareholders

0.00

0.01

0.06

0.02

Net loss attributable to common shareholders

$

(0.05

)

$

(0.01

)

$

(0.09

)

$

(0.06

)

Weighted average common shares outstanding – basic and diluted

64,780,540

63,597,290

64,171,770

63,538,314

Dividends declared per common share

$

0.06

$

0.06

$

0.18

$

0.18

Loss attributable to Kite Realty Group Trust common shareholders

Loss from continuing operations

$

(3,243,747

)

$

(1,150,140

)

$

(9,416,614

)

$

(4,907,566

)

Income from discontinued operations

205,587

506,556

3,629,680

1,056,278

Net loss attributable to Kite Realty Group Trust common shareholders

$

(3,038,160

)

$

(643,584

)

$

(5,786,934

)

$

(3,851,288

)

Kite Realty Group TrustFunds From OperationsFor the Three and Nine Months Ended September 30, 2012 and 2011(Unaudited)

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,

2012

2011

2012

2011

Consolidated net (loss) income

$

(1,236,305

)

$

742,235

$

1,532,596

$

68,994

Less dividends on preferred shares

(2,114,063

)

(1,443,750

)

(5,805,939

)

(4,331,250

)

Less net (loss) income attributable to noncontrolling interests in properties

(35,228

)

(21,049

)

(111,642

)

(62,825

)

Less (loss) gain on sale of operating property, net of tax expense

65,312

—

(5,180,568

)

—

Add depreciation and amortization, net of noncontrolling interests

11,257,277

8,656,553

31,581,636

27,523,156

Funds From Operations of the Kite Portfolio 1

7,936,993

7,933,989

22,016,083

23,198,075

Less redeemable noncontrolling interests in Funds From Operations

(799,648

)

(881,143

)

(2,324,421

)

(2,551,788

)

Funds From Operations allocable to the Company 1

$

7,137,345

$

7,052,846

$

19,691,662

$

20,646,287

Basic FFO per share of the Kite Portfolio

$

0.11

$

0.11

$

0.31

$

032

Diluted FFO per share of the Kite Portfolio

$

0.11

$

0.11

$

0.31

$

0.32

Funds From Operations of the Kite Portfolio

$

7,936,993

$

7,933,989

$

22,016,083

$

23,198,075

Add back: litigation charge

—

—

1,289,446

—

Add back: accelerated amortization of deferred financing fees

—

—

500,028

—

Funds From Operations of the Kite Portfolio, as adjusted

$

7,936,993

$

7,933,989

$

23,805,557

$

23,198,075

Basic and Diluted FFO per share of the Kite Portfolio, as adjusted

$

0.11

$

0.11

$

0.33

$

0.32

Basic weighted average Common Shares outstanding

64,780,540

63,597,290

64,171,770

63,538,314

Diluted weighted average Common Shares outstanding

65,126,104

63,833,551

64,504,424

63,818,493

Basic weighted average Common Shares and Units outstanding

71,956,742

71,443,788

71,785,927

71,389,398

Diluted weighted average Common Shares and Units outstanding

72,302,306

71,680,049

72,118,581

71,669,577

____________________

1

“Funds From Operations of the Operating Partnership” measures 100% of the operating performance of the Operating Partnership’s real estate properties and construction and service subsidiaries in which the Company owns an interest. “Funds From Operations allocable to the Company” reflects a reduction for the redeemable noncontrolling weighted average diluted interest in the Operating Partnership.

Kite Realty Group TrustSame Property Net Operating IncomeFor the Three and Nine Months Ended September 30, 2012 and 2011(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2012

2011

%Change

2012

2011

%Change

Number of properties at period end 1

49

49

49

49

Leased percentage at period-end

93.0%

92.7%

93.0%

92.7%

Minimum rent

$

16,726,596

$

16,630,615

$

49,098,450

$

48,608,875

Tenant recoveries

4,478,051

4,272,777

12,837,832

12,589,913

Other income

527,432

484,298

1,620,329

1,393,217

21,732,079

21,387,690

63,556,611

62,592,005

Property operating expenses

4,601,434

4,493,844

12,537,840

13,072,544

Real estate taxes

2,988,318

3,012,290

8,717,646

8,531,337

7,589,752

7,506,134

21,255,486

21,603,881

Net operating income – same properties (49 properties)2

14,142,327

13,881,556

1.9

%

42,301,125

40,988,124

3.2

%

Reconciliation to Most Directly Comparable GAAP Measure:

Net operating income – same properties

$

14,142,327

$

13,881,556

$

42,301,125

$

40,988,124

Net operating income – non-same properties

3,736,374

1,902,275

9,525,922

5,613,271

Construction, net and other

138,134

205,599

177,543

321,972

General, administrative and acquisition expenses

(1,647,116

)

(1,401,475

)

(5,261,293

)

(4,661,059

)

Acquisition costs

(108,169

)

—

(179,102

)

(49,968

)

Litigation charge

—

—

(1,289,446

)

—

Depreciation expense

(11,244,270

)

(8,283,440

)

(30,720,823

)

(26,328,902

)

Interest expense

(6,481,825

)

(6,131,103

)

(19,164,454

)

(17,000,667

)

Discontinued operations

228,240

568,823

6,143,124

1,186,223

Net loss (income) attributable to noncontrolling interests

312,208

57,931

(1,513,591

)

410,968

Dividends on preferred shares

(2,114,063

)

(1,443,750

)

(5,805,939

)

(4,331,250

)

Net loss attributable to common shareholders

$

(3,038,160

)

$

(643,584

)

$

(5,786,934

)

$

(3,851,288

)

____________________

1

Same Property analysis excludes Courthouse Shadows, Oleander Place, Four Corner Square, Rangeline Crossing and Bolton Plaza as the Company pursues redevelopment of these properties. For the third quarter, it also excludes three properties (Preston Commons, Pen Products, and Indiana State Motor Pool) that were transferred to “held for sale” status during the quarter.

2

Same Property net operating income is considered a non-GAAP measure because it excludes net gains from outlot sales, write offs of straight-line rent and lease intangibles, bad debt expense and related recoveries, lease termination fees and significant prior year expense recoveries and adjustments, if any. Such items are included in net operating income – non-same properties.

The Company believes that Net Operating Income is helpful to investors as a measure of its operating performance because it excludes various items included in net income that do not relate to or are not indicative of its operating performance, such as depreciation and amortization, interest expense, and impairment, if any. The Company believes that Same Property NOI is helpful to investors as a measure of its operating performance because it includes only the NOI of properties that have been owned for the full period presented, which eliminates disparities in net income due to the redevelopment, acquisition or disposition of properties during the particular period presented, and thus provides a more consistent metric for the comparison of the Company's properties. NOI and Same Property NOI should not, however, be considered as alternatives to net income (calculated in accordance with GAAP) as indicators of the Company's financial performance.